Thinking of Raising Hourly Billing Rates?
Get Ready to Rumble

By Zach Lowe
The American Lawyer
New York Lawyer
December 4, 2009

Susan Blount, the general counsel of Prudential Financial, sent a letter last month to the 60 law firms the insurance giant uses regularly. The letter addressed the general economy and the need to cut costs, but one announcement stuck out: Prudential informed the firms that in calendar year 2010, the company expected to pay for legal services at 2008 hourly rates. It wasn’t a request as much as a take it or leave it deal, Blount says.

"The response," Blount says, "has run the gamut, from acceptance to disgruntled acceptance to firms saying, ‘You just don’t understand!’ "

Blount, of course, is not alone in her quest to control legal costs. Law firm and legal department consultants say GCs are looking for at least a freeze on rates in the coming year. Many are asking for cuts to 2009 billing rates of as much as 15 percent, says Ward Bower of Altman Weil.

Paul Hurd, general counsel of Daimler Trucks North America, says he already instituted a significant rate cut a year ago, when he asked the 75 firms Daimler uses to set 2009 billing rates at about 90 percent of 2008 rates. What does he have in mind for 2010? Hurd says Daimler will ask firms to stick with the current hourly rate. That translates to an hour rate in 2010 that is lower than the firms’ 2008 rates.

All this comes against the backdrop of an Altman Weil survey indicating that law firms, on average, are projecting an increase in 2010 hourly rates of about 4.1 percent, with the largest U.S. firms (those with 500 or more lawyers) expecting an even (slightly) higher increase. The Altman Weil results largely mirror those from The American Lawyer’s recent Law Firm Leaders Survey on 2010 hourly rates.

"There’s an inevitable collision here," Bower says. "And I think the corporations are going to prevail."

"It’s a buyer’s market," says Bradford Hildebrandt, the chair and founder of the consulting company Hildebrandt International.

The Altman survey (which drew responses from 288 firms, including 45 percent of the firms in the "NLJ 250") includes some anonymous respondent comments indicating that firm leaders expect the billable increase fight to be tough. "Most clients are not honoring rate increases in 2010, just like in 2009," one respondent writes. Another is a bit feistier: "Firms need to push back on the clients’ unreasonable demands to hold rates at 2008 levels and give a 15 percent discount off of those rates."

How hard will the firms fight? Are they willing to lose client business in order to take a stand on rates? Hurd says only "a couple" of the firms Daimler Trucks uses parted ways with the company over last year’s rate cuts. Blount says that none of the 60 firms Prudential contracts with have said "no thanks" yet, though she says she is receiving letters from firms explaining why the proposed cuts shouldn’t apply to them. "They are detailing why they are special," she says. But she is ready to defend the cuts. "We find ourselves at an economic crossroads in 2009," she says. "We have a special obligation to the company to be smart purchasers of legal services. We’re not trying to undermine the economics of law firms. We are looking for the right way to get high quality work for our company at a reasonable price."

Like other GCs we’ve talked to, Blount is open to alternative fees and fixed rates, and she’s looking to give more business to mid-sized firms. She’s also willing to offer firms the carrot of more business in exchange for discounted costs.

Even as such arrangements become more common, everyone agrees that the billable hour remains king. "I’ve been doing this for 30 years, and people keep talking about the death of the billable hour," Hurd says. "But it’s still around."

And that will make for some interesting back-and-forth as 2010 rates get set over the next few weeks.

NY Partner Fired for Not Meeting Billing
Targets During Wall St. Meltdown Sues Firm

By Nate Raymond
New York Law Journal
New York Lawyer
July 22, 2009

A former corporate partner in the New York office of Edwards Angell Palmer & Dodge hired in the months before the credit crisis hit is suing the firm after it fired him for failing to meet revenue expectations.

Stephen R. Connoni, who joined the Boston-based firm in September 2007 but left only one year later, sued the firm in April in Manhattan Supreme Court for allegedly "unilaterally and improperly" firing him without a required vote of the partnership and without paying him all that he was owed.

The dispute between Mr. Connoni and Edwards Angell highlights the growing pressure on lateral hires in bad economic times to produce, said Marina Sirras, a New York recruiter who is also president of the National Association of Legal Search Consultants.

Firms are less and less likely to tolerate new recruits who do not carry through with bringing over business, she said.

"Firms are very conscious about the bottom line and what you can contribute to it," Ms. Sirras said.

Gina Carriuolo, a spokeswoman for Edwards Angell, said the firm does not comment on pending matters.

But in court papers the law firm contends Mr. Connoni breached the terms of his agreement by failing to bring in the business he had promised. And, it argues, in any case the employment dispute should be settled through arbitration.

Mr. Connoni acknowledges that he had not generated the $1.9 million in business projected in his agreement with the firm but argues Edwards Angell should have adjusted its expectations, given the economic meltdown.

A hearing will be held before Justice Richard Lowe on Aug. 4 on the firm's motion to dismiss in Connoni v. Edwards Angell Palmer & Dodge, 601291/2009.

Meanwhile, an arbitration claim the firm filed in May is pending in Boston. Mr. Connoni has moved to stay the arbitration.

Edwards Angell, a general practice firm with Boston roots, opened shop in New York in 1978. Today, the office has 74 of the firm's 550 attorneys. Of those, 40 are listed on the firm's Web site as partners.

Edwards Angell recruited Mr. Connoni from K&L Gates, where Mr. Connoni says he was an equity partner in the New York office and worked for about eight years. At K&L Gates, Mr. Connoni said he was co-leader of a team that grew the New York corporate department from zero lawyers when he started to 25 with $14 million in revenue at the time he left.

K&L Gates chairman Peter Kalis declined to say if those facts or numbers were accurate.

According to his complaint, Mr. Connoni began talking in summer 2007 with Edwards Angell about joining the firm and helping it grow its New York corporate practice. The firm hired him that September as a contract partner.

Under a letter signed by co-managing partner Terrence M. Finn and "agreed to" by Mr. Connoni, the firm was to pay him $625,000 in 2008 provided he generated $1.9 million of new business and himself collected $800,000 in fees.

Starting in 2009, the firm would determine his compensation on the same basis as other capital partners, the agreement states.

Messrs. Connoni and Finn talked about what would happen if Mr. Connoni did not meet the billing expectations, the complaint says. Mr. Finn proposed linking Mr. Connoni's compensation directly to how much he collected, the complaint states.

"Mr. Connoni rejected that proposal, explaining that while he hoped and expected to quickly succeed, the building of a department could take significant time and effort by both himself and [Edwards Angell]," the complaint says.

Ultimately, Mr. Connoni says they agreed that his compensation could be "appropriately" adjusted based on a variety of factors, including economic and financial conditions and the state of private equity and securities practice areas.

Both sides agree that Mr. Connoni did not meet the expectations.

Mr. Connoni, in his complaint, says that during the first nine months of 2008 he only billed $800,000 and collected $100,000.

Edwards Angell, in its motion to dismiss and arbitrate the claim, says it collected $135,000 for Mr. Connoni's work in 2007 and 2008, only 12 percent of what he promised in his agreement. The firm charges that he did not even show up for work at some times and failed to make timely capital contributions to the firm.

In the arbitration, the law firm is seeking $461,750 in damages and a declaration that it does not owe money.

'Unprecedented Downturn'

Among the explanations Mr. Connoni advances for failing to meet his billing targets were "problems in the private equity and securities offering practice areas, the credit crisis, the nearly unprecedented downturn in the general economy and the disruptions in the financial markets."

He claims he also was hampered by late paying clients, a lack of firm support, the departure of key partners, and the failure of other partners to introduce him to firm clients.

The complaint does not name the departing partners. Reed Smith last year hired away John Hooper, a commercial litigator and the managing partner of Edwards Angell's New York office. He brought along partners Eric Gladbach and Christopher Healy. Mr. Hooper did not return a call seeking comment.

On Sept. 23, 2008, a week after Lehman Brothers fell, Mr. Connoni met with Walter Reed, who had taken took over as Edwards Angell's firmwide managing partner that April. Mr. Reed, the complaint says, informed Mr. Connoni he had been terminated. Mr. Connoni says he was given no advance notice before he was fired.

Under his letter agreement and the partnership agreement, Mr. Connoni claims the firm should not have been able to terminate him until after January 2010 and only with 75 percent of the partners voting. Because the firm did not follow these required procedures, Mr. Connoni says he is entitled to draw compensation through the first four months of 2010 on the same basis as other capital partners. He also is seeking unspecified damages plus interest.

The letter agreement, included as an exhibit, stipulates that Edwards Angell's executive committee starting in 2008 would review Mr. Connoni's performance before Feb. 28 each year. It could then recommend an extension of the letter agreement for another year or his continuation as a partner without the letter agreement.

The letter says the executive committee could remove Mr. Connoni as a partner at any time on or after Jan. 31, 2010, with at least 90 days notice. The full partnership could remove him "at any time" with a 75 percent vote.

The firm, in its motion to dismiss and in the Boston arbitration, does not deny that it did not call a firmwide meeting. Rather, it says it wanted to avoid "embarrassment" for Mr. Connoni. The firm claims it met "all of its pertinent contractual obligations to [Mr.] Connoni, and resolved logistical issues relating to his departure."

Mr. Connoni claims Mr. Reed fired him "in substantial part" because of the firm's "financial problems." The complaint does not elaborate. Edwards Angell grossed $315 million in 2008, down 1.7 percent, according to The American Lawyer, a Law Journal affiliate. Profits per partner fell 15 percent to $610,000.

Mr. Connoni is now unemployed, his lawyer, Joel Chernov at Constantine Cannon, said in an e-mail.

Starting less than two weeks after he joined Edwards Angell, the Internal Revenue Service began filing liens against Mr. Connoni's property that now amount to more than $2.3 million, according to New York City Department of Finance records. In its arbitration claim, the firm says New York state has filed a $154,090 tax levy on Mr. Connoni's property. Because of that, Edwards Angell expects the state will claim priority on the $19,654 in Mr. Connoni's capital account.

The state currently has an open $171,119 tax warrant against Mr. Connoni, which it filed in October 2007, according to a records database.

Mr. Chernov said in his e-mail that the "liens are not related to the lawsuit." He did not elaborate.

In-House Lawyers Say They Are Too Busy to Hire BigLaw

By Sheri Qualters
The National Law Journal
July 20, 2009

Corporations are using fewer law firms because short-staffed corporate legal departments have little time to manage outside firms, according to new research.

The study, carried out by BTI Consulting Group, canvassed 550 companies with average revenues of £16bn and average annual legal spend of £12m.

Companies surveyed said they expect to have on average two primary law firms by 2012, six secondary firms and 23 other firms they sometimes use. That compares with a 2008 average of two primary law firms, nine secondary firms and 32 other firms.

In 2007, the companies on average worked with two primary, 10 secondary and 40 other firms.

Corporations' efforts to trim their list of law firms, known as convergence, is a long-term trend, but in the current climate, money was not the only issue cited by companies.

BTI president Michael Rynowecer commented: "Corporate counsel are saying, 'I don't have time to be managing law firms; I just cut my staff by 20%.'"

Corporate counsel are also indicating a reluctance to work with firms that are not flexible in billing, staffing matters and communicating with the client, Rynowecer said. Companies' increasing demands for flexibility create opportunities for smaller firms, and BTI research shows the same companies making a marked migration to smaller firms.

According to the data, companies have fewer relationships with Am Law 100 and 200 firms - the US's top 200 revenue-producing firms, as ranked by The American Lawyer.

The research showed 36% of the firms the companies worked with in 2008 were Am Law 100 firms, 26% were Am Law 200 firms and 38% were outside the Am Law 200. In 2007, 64% of the firms the companies worked with were in the Am Law 100, 13% were in the Am Law 200 and 25% were outside the Am Law 200.

"If you put together the fact that companies are embracing smaller firms at same time they are reducing the number of law firms they are using, it is real, it has traction and clearly there is new behaviour," Rynowecer said.

NY BigLaw Firm Sued for Allegedly
 Overbilling Clients for Legal Research

By Tresa Baldas
The National Law Journal
May 12, 2009

A California plaintiffs' attorney has filed a lawsuit against a New York-based law firm on a behalf of a former client of the firm for what she claims is a hidden but widespread practice within the legal profession: law firms secretly profiting off legal research fees by overcharging clients.

Consumer protection attorney Patricia Meyer filed a suit against New York's Chadbourne & Parke on March 2 for allegedly overcharging J. Virgil Waggoner, a Texas businessman, by several thousands of dollars for computerized legal research. His bill was roughly $20,000 for the research, she said, but it should have been closer to $5,000. Waggoner v. Chadbourne & Parke, No. BC408693 (Los Angeles Co., Calif., Super. Ct.).

She did not serve the firm until May 1 because, she said, she did not want to compromise other investigations alleging similar claims.

Meyer of San Diego's Patricia Meyer & Associates said that many similar lawsuits are in the pipeline, noting that she has amassed evidence that shows at least a dozen other law firms are overcharging clients for legal research, but not telling them.

Hard Times Have GCs Taking
 a Hard Look at Law Firm Bills

By Emily Heller
The National Law Journal
April 7, 2009

Harsh Times Have Clients Grousing
 About the Billable Hour

By Alana Roberts
Daily Business Review
New York Lawyer
March 20, 2009

MIAMI - A 20 percent drop in revenue for tractor-maker Caterpillar means there’s less money for legal expenses.

Mark Anderson, the company’s Miami-based counsel for Latin America and the Caribbean, said the pressure to cut spending in today’s environment is forcing corporate counsel to cut the fat out of their legal bills.

"In-house counsel are facing huge budget pressures to cut back," he said last week at a roundtable discussion of corporate counsel in Miami. "It’s a time to scrutinize legal bills. In flush times, you let slide excessive time entries. This environment shortens the tolerance of [those] things. We need a good result done in an efficient way."

His opinion was shared by other corporate attorneys.

Frederick Wilson III, the Miami-based vice president, general counsel and secretary of Bacardi U.S.A., said company revenue has dropped as consumers reduced spending on travel, dining and drinking.

"We are getting hurt," he said. "People are cutting their travel costs. You don’t have as many people going out to eat during the week. It hurts hospitality and us. We’re down a little bit, less than 20 percent."

Jose Sariego, senior vice president of business and legal affairs for HBO Latin America Group, said he is reviewing legal bills with a sharp eye for excessive charges and the terms in engagement letters.

"When I get my stack of legal bills I put them in two stacks," he said. "I put those that comply in one stack, and I put all the problem children in the other stack. Guess which one gets paid first? The one that’s easy to digest."

When looking to cut legal costs, Wilson said Bacardi cuts the amount it spends on outside law firms first.

"We look at outside counsel fees as our first cut," he said. "What can we do in-house? What arrangements can we make with outside counsel?"

Most outside attorneys know the score because the recession is producing financial introspection everywhere, Wilson said.

"Most are understanding. I think most have similar pressures within their law firms," he said.

But as companies get more vigilant in their oversight of legal bills by requesting more frequent billing estimates, Wilson said not all law firms are able to respond quickly.

Frank Rodriguez, chief executive officer and general counsel of Palm Beach Gardens-based Corporate Creations, a registered agent service, said the pervasive billable hour compensation structure for legal services is inherently flawed. He said he saw the problems with the system 20 years ago as an associate at Steel Hector & Davis.

"It always struck me there was a conflict of interest in me being efficient and the firm billing," he said. "The more time it took me, the more money the firm made. That always struck me as irrational."

Rodriguez said his firm sends little legal work to outside counsel and insists on alternatives to the billable hour when it does. One option is a flat fee plus a success fee if the assignment is completed with the desired outcome.

"It would turn the law profession from an assembly line to a profession, which is what it used to be 40 years ago," he said.

Daniel DiLucchio Jr., a Newtown Square, Pa.-based principal for legal consulting firm Altman Weil, said the downturn is forcing corporate counsel to take a more critical look at billing by their outside firms.

Before the economic decline, most law firms offered variations on the billable hour but no true alternative billing methods. Other examples include fixed fees per assignment basis and taking on work in a specific area for an annual retainer.

DiLucchio said the soft economy is spurring clients to pressure their outside attorneys for realistic alternatives that provide clients with something that the billable hour model can’t.

"What general counsel are seeking is more predictability in their legal fees as well as controlling the costs," he said. "Usually, what general counsel end up doing is managing costs after the fact when the bill arrives. By then it’s too late."

South Florida law firm leaders say they’re feeling pressure from increasingly frugal clients to cut legal expenses and are responding.

"I am seeing traditional clients having real reservations in terms of spending money and really looking for extra value trying to make their cash go further, which puts a premium on alternative billing," said Andrew Hall, a litigation partner with Miami’s Hall Lamb & Hall.

In one unusual case, he is taking a piece of office property as collateral while litigation is pending for a developer client. Other options are charging clients for each phase of litigation.

He said there’s much more of a need to evaluate the likelihood of a firm going insolvent by the end of litigation when determining whether to take on a case.

Rodriguez said now is the time for companies to demand changes in billing changes.

"We’re in the midst of chaos in the U.S. and globally," he said. "I can’t think of a better time for inside counsel to deal with outside corporate counsel. It has to be done one company at a time, one law firm at a time. It needs to be a grass-roots movement."

The discussion was part of an all-day event organized by Morgan Lewis & Bockius, the South Florida Group of Regional Counsel and the University of Miami School of Law.

                                         By the Numbers

General counsel expecting budget cuts - 75 percent
Expected legal department budget cut - 12 percent
General counsel planning to handle more legal work internally - 65 percent
General counsel planning to move legal work to lower-priced firms - 53 percent
General counsel seeking more alternative fee arrangements - 51 percent
Source: Altman Weil survey

Battle Royale Brews Over Billable Rates

By Michael Tierney
New York Lawyer
March 17, 2009

ATLANTA - When an East Coast law firm ignored a client's suggestion and announced a nearly double-digit percentage billable hour rate hike for this year, the customer shifted some of its business elsewhere.

"The client, this firm did not hear," says Michael Rynowecer of Wellesley, Mass.-based BTI Consulting Group, a supplier of client research to law firms.

Most firms are hearing, loud and clear, from clients seeking a little billable-hour love during these harsh economic times. For two decades, substantial rate boosts were an annual rite, placing clients in a grin-and-bear-it posture.

No longer. Industry observers say clients are requesting -- even demanding -- by letter, fax, e-mail and Ma Bell a smaller tab to smooth their ride through the recession.

"By and large, there is significant increased pressure from the clients," says Joe Altonji, vice president in the Chicago office of the professional services consulting firm Hildebrandt International, whose study released last September projected a slowdown in law firm spending. "Unlike past years, when you have seen across-the-board billable rate increases, that clearly didn't happen this year."

Some firms have even touted their rate freeze, an unusual disclosure given that billing procedures often are guarded like state secrets.

"Pulling rates up is very difficult in this environment," says Chuck Trense, president and CEO of the attorney recruiting and placement firm Trense Group in Atlanta. "Most of my [law firm] clients are holding steady on rates. A few are raising them, but slightly."

A poll of 708 firms conducted in November by Altman Weil, a management consultant to legal organizations, concluded that about one-third would elevate rates at the usual pace, 4 percent would hold the line and the rest would adjust upward minimally or selectively.

"There will be decreases, but I'll be surprised to see many," says Peter Zeughauser, chairman of the California-based legal industry strategist Zeughauser Group, adding that he expects most to lift their rates by a modest 3 percent to 5 percent. "Firms have learned that if you miss a rate increase, that can have a deleterious effect on long-term profitability."

But the picture painted by the poll findings does not tell the full story. With the posted billable hour rate, a system with roots in the 1960s, what you see is not what firms get. Discounts always have been an integral part of the game, and experts predict they will go deeper than ever, especially for a firm's treasured clients.

To Altonji, setting one's rate is an art, combining facts and data with feel and intuition. Once that is done, deciding on individual discounts on a case-by-case basis complicates the challenge, since one-price-fits-all rarely is applied.

"It's not like going to a car dealer and seeing that the [entire inventory] is 20 percent off," Trense says of unlikely blanket rate adjustments.

As for the typical 6 percent to 8 percent boost of years past, "Nobody is that naive -- or dumb," says Tom Clay, principal at Altman Weil, who foresees rates remaining largely flat.

Rate bumps "are very minor, at best," Hildebrant's Altonji says. "More contained, not as widespread."

ALTERNATIVE BILLING -- FOR REAL THIS TIME?

The battered economy has forced firms to examine their overall rate structure beyond the billable hour concept. It's the auto industry's equivalent to special financing, rebates and employee pricing.

The idea of alternatives to billable hours is nothing new; Altonji says it predates his 20 years in the business. To paraphrase the old saying about the weather: Everybody talks about it, but nobody does anything about it.

Until now.

"Billable rate [issues] are an oversimplification of what's going on," Trense says. Clients "are looking for value. At the end of the day, they don't care about the hourly rate. They are concerned about the total cost to get the job done -- and the quality."

Such thinking has jump-started all sorts of back-and-forth between law firms and clients. Altman Weil's Clay quotes one general counsel as saying, "If lawyers can't offer us alternative fees, we'll go find alternative lawyers."

Options to the billable hour "have been coming into play the last five years," Clay says. "The [weakened] economy has hugely accelerated it."

Altman Weil made a Webinar presentation on various billing choices to its own clients early this month that Clay said was heavily attended. "Our consulting on this has skyrocketed in the last 60 days."

The most commonly discussed option is a fixed fee for each legal task. After widely resisting for years, firms may be more amenable to locking in a compensation figure from the get-go, which eases budgetary concerns for clients.

It's a misconception, according to Altonji, that fixed fees have not caught on solely because of feet-dragging by law firms. Clients, too, have been hesitant. If both sides come to the fixed-fee table only to save money, he notes, chances are that one will push away from it with no deal.

Other substitute methods include a success fee (which amounts to a bonus for a positive outcome or for meeting certain benchmarks), a maximum and/or minimum fee and a retainer.

"It's all becoming client-specific," BTI's Rynowecer says. "Whatever meets the clients' needs."

No billing suggestion from either camp is out of bounds anymore. A firm might agree to a fee format or a rate that is advantageous to the client in exchange for a pledge of long-term loyalty.

"To the extent that they are important clients, [firms] cannot afford to ignore them," Altonji says.

Some analysts predict that the law industry will have to be hauled kicking and screaming into a new era of fee structure.

"Law firms are generally not risk-takers," says Clay, adding that some avoid even broaching the subject of rates and fees with clients. His company urges such firms to "take an aggressive approach with clients" in negotiating fresh ways to conduct business.

"Don't sit and wait. Don't let a client call and ask for it. Say, 'We know you're hurting. Let's talk about how we can have a win-win.'"

One foreseeable cost-saving trend is pushing some duties down the ladder from a senior-level associate to a less experienced one. Or, from the less experienced to a paralegal. The firms avoid an actual rate reduction but wind up charging less at the end.

Zeughauser suggests that law firms need not lose sleep over the specter of declining revenues.

"Despite a lot of clamoring, despite the downturn, despite the slackening of [work], we're talking about an industry where demand has grown consistently for a generation," he says. "There's not enough lawyers to satisfy the demand. That has caused a talent war [by firms in hiring lawyers], and I don't foresee that changing in the long term."

More immediately, though, clients might have the upper hand in give-and-take over fees. The observers say that bankruptcy work, which tends to pick up during recessions and offsets declines in other practices, has not been as lucrative this time around.

"Right now, employment and labor law is the only area that is robust," Trense says. "Most folks I've talked to seem to think '09 is going to be worse [overall] than '08."

Muddying the waters for some Atlanta branches of nationwide firms, Trense adds, is heat from the home offices to bring up their billable hour figures more in line with the going rates in places such as New York and Washington.

"Some of the [main offices] are putting on the pressure," Trense says. "It's creating tension in the Atlanta offices of some of these national firms."

On a nationwide scale, if law firms discover their bottom line benefits from innovative billing, they might warm to the notion. One welcome side effect of the recession is that it might accelerate movement toward alternative arrangements.

"I don't think billable hours are going away soon. I do think we're going to see some change," says Altonji. He suggests changes could occur perhaps even in the next 20 years of his career.

Still, it won't be easy for an industry steeped in the tradition of billable rates ascending year after year.

"Most firms are taking a wait-and-see attitude," Clay said. "They are hoping like hell they aren't asked to lower rates more."

Battle Royale Brews Over Billable Rates

By Michael Tierney
Daily Report
New York Lawyer
March 17, 2009

ATLANTA - When an East Coast law firm ignored a client's suggestion and announced a nearly double-digit percentage billable hour rate hike for this year, the customer shifted some of its business elsewhere.

"The client, this firm did not hear," says Michael Rynowecer of Wellesley, Mass.-based BTI Consulting Group, a supplier of client research to law firms.

Most firms are hearing, loud and clear, from clients seeking a little billable-hour love during these harsh economic times. For two decades, substantial rate boosts were an annual rite, placing clients in a grin-and-bear-it posture.

No longer. Industry observers say clients are requesting -- even demanding -- by letter, fax, e-mail and Ma Bell a smaller tab to smooth their ride through the recession.

"By and large, there is significant increased pressure from the clients," says Joe Altonji, vice president in the Chicago office of the professional services consulting firm Hildebrandt International, whose study released last September projected a slowdown in law firm spending. "Unlike past years, when you have seen across-the-board billable rate increases, that clearly didn't happen this year."

Some firms have even touted their rate freeze, an unusual disclosure given that billing procedures often are guarded like state secrets.

"Pulling rates up is very difficult in this environment," says Chuck Trense, president and CEO of the attorney recruiting and placement firm Trense Group in Atlanta. "Most of my [law firm] clients are holding steady on rates. A few are raising them, but slightly."

A poll of 708 firms conducted in November by Altman Weil, a management consultant to legal organizations, concluded that about one-third would elevate rates at the usual pace, 4 percent would hold the line and the rest would adjust upward minimally or selectively.

"There will be decreases, but I'll be surprised to see many," says Peter Zeughauser, chairman of the California-based legal industry strategist Zeughauser Group, adding that he expects most to lift their rates by a modest 3 percent to 5 percent. "Firms have learned that if you miss a rate increase, that can have a deleterious effect on long-term profitability."

But the picture painted by the poll findings does not tell the full story. With the posted billable hour rate, a system with roots in the 1960s, what you see is not what firms get. Discounts always have been an integral part of the game, and experts predict they will go deeper than ever, especially for a firm's treasured clients.

To Altonji, setting one's rate is an art, combining facts and data with feel and intuition. Once that is done, deciding on individual discounts on a case-by-case basis complicates the challenge, since one-price-fits-all rarely is applied.

"It's not like going to a car dealer and seeing that the [entire inventory] is 20 percent off," Trense says of unlikely blanket rate adjustments.

As for the typical 6 percent to 8 percent boost of years past, "Nobody is that naive -- or dumb," says Tom Clay, principal at Altman Weil, who foresees rates remaining largely flat.

Rate bumps "are very minor, at best," Hildebrant's Altonji says. "More contained, not as widespread."

Alternative Billing -- for Real this Time?

The battered economy has forced firms to examine their overall rate structure beyond the billable hour concept. It's the auto industry's equivalent to special financing, rebates and employee pricing.

The idea of alternatives to billable hours is nothing new; Altonji says it predates his 20 years in the business. To paraphrase the old saying about the weather: Everybody talks about it, but nobody does anything about it.

Until now.

"Billable rate [issues] are an oversimplification of what's going on," Trense says. Clients "are looking for value. At the end of the day, they don't care about the hourly rate. They are concerned about the total cost to get the job done -- and the quality."

Such thinking has jump-started all sorts of back-and-forth between law firms and clients. Altman Weil's Clay quotes one general counsel as saying, "If lawyers can't offer us alternative fees, we'll go find alternative lawyers."

Options to the billable hour "have been coming into play the last five years," Clay says. "The [weakened] economy has hugely accelerated it."

Altman Weil made a Webinar presentation on various billing choices to its own clients early this month that Clay said was heavily attended. "Our consulting on this has skyrocketed in the last 60 days."

The most commonly discussed option is a fixed fee for each legal task. After widely resisting for years, firms may be more amenable to locking in a compensation figure from the get-go, which eases budgetary concerns for clients.

It's a misconception, according to Altonji, that fixed fees have not caught on solely because of feet-dragging by law firms. Clients, too, have been hesitant. If both sides come to the fixed-fee table only to save money, he notes, chances are that one will push away from it with no deal.

Other substitute methods include a success fee (which amounts to a bonus for a positive outcome or for meeting certain benchmarks), a maximum and/or minimum fee and a retainer.

"It's all becoming client-specific," BTI's Rynowecer says. "Whatever meets the clients' needs."

No billing suggestion from either camp is out of bounds anymore. A firm might agree to a fee format or a rate that is advantageous to the client in exchange for a pledge of long-term loyalty.

"To the extent that they are important clients, [firms] cannot afford to ignore them," Altonji says.

Some analysts predict that the law industry will have to be hauled kicking and screaming into a new era of fee structure.

"Law firms are generally not risk-takers," says Clay, adding that some avoid even broaching the subject of rates and fees with clients. His company urges such firms to "take an aggressive approach with clients" in negotiating fresh ways to conduct business.

"Don't sit and wait. Don't let a client call and ask for it. Say, 'We know you're hurting. Let's talk about how we can have a win-win.'"

One foreseeable cost-saving trend is pushing some duties down the ladder from a senior-level associate to a less experienced one. Or, from the less experienced to a paralegal. The firms avoid an actual rate reduction but wind up charging less at the end.

Zeughauser suggests that law firms need not lose sleep over the specter of declining revenues.

"Despite a lot of clamoring, despite the downturn, despite the slackening of [work], we're talking about an industry where demand has grown consistently for a generation," he says. "There's not enough lawyers to satisfy the demand. That has caused a talent war [by firms in hiring lawyers], and I don't foresee that changing in the long term."

More immediately, though, clients might have the upper hand in give-and-take over fees. The observers say that bankruptcy work, which tends to pick up during recessions and offsets declines in other practices, has not been as lucrative this time around.

"Right now, employment and labor law is the only area that is robust," Trense says. "Most folks I've talked to seem to think '09 is going to be worse [overall] than '08."

Muddying the waters for some Atlanta branches of nationwide firms, Trense adds, is heat from the home offices to bring up their billable hour figures more in line with the going rates in places such as New York and Washington.

"Some of the [main offices] are putting on the pressure," Trense says. "It's creating tension in the Atlanta offices of some of these national firms."

On a nationwide scale, if law firms discover their bottom line benefits from innovative billing, they might warm to the notion. One welcome side effect of the recession is that it might accelerate movement toward alternative arrangements.

"I don't think billable hours are going away soon. I do think we're going to see some change," says Altonji. He suggests changes could occur perhaps even in the next 20 years of his career.

Still, it won't be easy for an industry steeped in the tradition of billable rates ascending year after year.

"Most firms are taking a wait-and-see attitude," Clay said. "They are hoping like hell they aren't asked to lower rates more."

The Fine Art of Overbilling

By Brian Baxter
The American Lawyer
New York Lawyer
February 25, 2009

In light of Cravath, Swaine & Moore presiding partner Evan Chesler's call to end the billable hour -- not surprising since the firm took such a hit on the billables last year -- some legal bloggers are opining on some of the more nefarious means of separating clients from their hard-earned cash.

And we're not talking about bill padding, but good old-fashioned, fraudulent overbilling.

Recent history tells us that lawyers from Am Law 200 firms are certainly not unfamilar with the siren song of inflated billables. Only a few years ago New York Law School professor Cameron Stracher, a contributor to The American Lawyer, penned this piece for The New York Times on how to bill 25 hours in one day. (Hat Tip: Law Shucks.)

Bitter Lawyer, meanwhile, invited anonymous blogger Philadelphia Lawyer, author of Happy Hour Is for Amateurs: A Lost Decade in the World's Worst Profession, to offer up some of the more ingenious ways firms can boost their billables.

Philadelphia Lawyer is careful to note that his list of overbilling schemes shouldn't be taken as a primer -- except perhaps for those who want to get arrested or disbarred -- but more an analysis of what he feels is one of the root causes of the warped compensation system that plagues the legal profession. In that regard, Chesler and Philadelphia Lawyer agree.

We've pared down Philadelphia Lawyer's list of eight routine overbilling scams that litigators (sorry corporate folks) can use to put their timesheets on a PED-only program. Without further ado:

1. Tell clients they're more exposed than they actually are. That way they'll be willing to spend more on their defense. Any potential settlement will also likely look like a win from a client's perspective and that means more in fees!

2. Embrace document review, the mother lode of law firm billables. Hire temp or staff attorneys and bill the client at normal associate rates.

3. Raise your hand and "volunteer." Philadelphia Lawyer writes that the lawyer who crafts the initial version of any document for all parties "gets the lion's share of billable time out of the project." If a client asks why you're always willing to spend all day on some mundane filing, just say you want to control the process so they're protected.

4. Don't be afraid to double dip. Travel time is billable time, often for two more clients at the same time.

5. Be a jackass. Angering opposing counsel is a proven, easy way to ensure a protracted legal battle. Always communicate in writing, which takes more time, instead of simply using the phone.

6. Cut-and-paste, but act original. Almost every brief has been written before. Except the one you're about to copy.

7. Let clients play lawyer if they want, even if they're spouting nonsensical arguments that would never hold up in court. Just close your eyes and listen to the clock tick.

8. Big words = big bills. Promissory estoppel? Statutory preclusion? Sounds important, right? Sometimes it is. Other times ... not so much. But most clients don't speak legalese. If they call and demand an explanation, talk them through it. It's all billable time, baby.

Mid Sized Firm Sees Revenues Drop Nearly 9 Percent

By Alana Roberts
Daily Business Review
New York Lawyer
February 6, 2009

MIAMI - Fort Lauderdale-based Ruden McClosky saw its revenue drop nearly 9 percent to $85.3 million last year as the firm responded to the economic slowdown with layoffs, according to financial data recently released by the firm.

Revenue per lawyer was down 6 percent to $495,930 in 2008, and the attorney count dropped 3 percent year over year.

The firm’s business is driven by litigation, representing 37 percent of revenue, and real estate at 34 percent, followed by 12 percent from corporate work, 2 percent from restructuring work and 15 percent from other areas. The 2007 results helped the firm land in the fourth spot on the Daily Business Review’s list of the strongest performing firms in Florida last year. Ruden trailed three much larger firms: Holland & Knight, Akerman Senterfitt and Greenberg Traurig. The full list of 2008 results is not complete yet.

Ruden received a survey based on American Lawyer’s annual review of law firm revenue and attorney compensation. The firm’s response was limited to revenue questions and attorney numbers, omitting answers to questions about compensation for equity and non-equity partners.

Carl Schuster, the firm’s president and managing director, did not return calls for comment.

The number of attorneys dropped 3 percent to 172 attorneys in 11 Florida offices at the end of last year from a year before. The average number of full-time equivalents for the full year was off by 5 percent.

The firm fired 15 secretaries and a real estate associate last year. Most of the cuts were made in October.

Ruden executive director David Lane said late last year that the cuts were part of the firm’s effort to realign its attorney-staff ratio to better reflect the industry standard of three attorneys to one secretary. He said the cuts were part of a long-term plan, but the timing was based on the slowing economy.

BigLaw Firm Sacks 60 Lawyers, 89 Staffers

By Lynne Marek
The National Law Journal
New York Lawyer
February 4, 2009

McDermott, Will & Emery has cut 60 lawyers, or about 5 percent of its attorney head count, and 89 staff employees, citing a slowdown in clients' business and a resulting drop in firm work on corporate transactions, among other matters.

"We are not immune to the continued deterioration in market conditions," firm Chairman Harvey Freishtat said in a memo to employees. "The business of our clients has slowed and this has affected our own levels of activity, particularly in the transactional area."

The firm, which was founded in Chicago, had about 1,100 lawyers and 1,210 nonattorney employees before the reduction. McDermott follows in the footsteps of other major law firms across the country, including Morrison & Foerster, Blank Rome and Mayer Brown, that have also cut their attorney workforces in recent months in the face of decreased client demand in certain areas, such as real estate and financial securities work.

Firms with a large presence in Chicago, where McDermott has its biggest office, seem to have been particularly hard hit, with Katten Muchin Rosenman; Sonnenschein Nath & Rosenthal; Kirkland & Ellis; and Seyfarth Shaw all paring attorneys since the beginning of October, sometimes in step with annual evaluations.

Even smaller Chicago firms have been trimming their lawyer workforces, noting a slowdown in work from clients who are also cutting their own budgets in response to the global economic recession. For instance, Levenfeld Pearlstein, which froze rates this year in response to client cost pressures; Wildman, Harrold, Allen & Dixon; and Neal Gerber & Eisenberg each eliminated a handful of lawyer positions last month.

Chicago Legal Search recruiter Chris Percival said that the city was simply catching up with reductions that law firms based primarily on the coasts had made earlier, mainly last year. Still, another Chicago recruiter, Art Gunther, who leads the Gunther Group, said Chicago firms may be cutting more because they tend to operate leaner than their competitors.

"Chicago firms are pretty financially conservative and don't want to be left with more personnel than they really need," Gunther said. "While that may be something that every firm in the country is worried about, I think Chicago firms have a history of being frugally managed."

The economic environment also offers an opportunity to "thin the ranks without a reputational blow," Gunther said.

Freishtat said in the memo that the firm "performed well" last year and "remains strong" going into this year. He plans to start visiting all 15 of the offices next week to talk with employees about the financial results and plans for this year. McDermott declined to say how many attorneys were cut from each of its offices or practice areas.

"Be assured that we remain a very strong firm with a deep talent pool, an impressive and diverse base of clients and practices, an international platform, and a healthy balance sheet," said Freishtat, who is based in the firm's Boston office.

The chairman called the decision to cut workers "tremendously difficult" and said that the staff affected will be meeting with their managers. The firm will provide severance benefits, career counseling and a fund "to assist staff who may face economic hardship after leaving the firm," the memo said.

McDermott has taken other steps to respond to the market downturn's impact on clients, including additional expense reductions and an expansion of client services.

From Worse to Worst:
 Law Firm Profits to Continue Slide in '09

By Karen Sloan
The National Law Journal
New York Lawyer
February 3, 2009

It is the roughest market the legal industry has seen in at least 17 years, and there is no quick fix or recovery on the horizon.

That point is but one of the many sobering predictions offered in the latest client advisory from Hildebrandt International and Citi Private Bank. The advisory concludes that profits-per-partner in 2008 generally spanned from flat to a 10 percent decrease compared with the previous year.

Profits are likely to fall even further in 2009, with average profits-per-partner declining by 5 percent to 15 percent, and perhaps more at certain law firms, according to the advisory.

Much of the sour news can be traced back to the faltering economy, which has been in an official recession since December 2007.

"To find a more analogous situation to the present downturn in the legal market, you would have to go back to 1991 and the economic problems triggered by the savings and loan crisis. But even in 1991, the recession was not as deep or broad as the current one, and the impact across the legal markets was not as severe," the advisory reads.

Even the downturn that followed the bursting of the technology bubble in 2001 was much shorter and more limited in scope, it notes.

The advisory predicts that recent moves by law firms to rein in expenses -- including reducing bonuses, freezing associate salaries, postponing new initiatives, instituting layoffs, weeding out unprofitable partners and slowing distribution schedules -- are likely to continue throughout 2009. Additionally, firms will not be able to rely on rising billing rates and growing demand for their services to generate record profits. Instead, they will need to reconsider changes to several key aspects of their business model. That includes everything from adjusting associate compensation structures and being more flexible with professional staff to offering alternatives to the billable hour model.

"The big message is that it's going to be a bit of a bumpy ride, but it's an opportunity to do things that probably should have been done before," said James Jones, a vice president of Hildebrandt International. "I think we've never had a more compelling set of reasons to [make significant changes to law firm business practices.]"

One of the primary problems facing law firms is declining demand for legal services, which has left attorneys in certain practice areas largely idle.

In contrast to historical growth in demand prior to the downturn, firms saw demand virtually stagnate in the first nine months of 2008, according to one survey. Yet another survey showed that demand actually fell by 2.6 percent during the course of the year, with corporate, mergers and acquisitions and litigation showing the biggest drop compared with 2007. At the same time, firm head count grew by 5.5 percent during the first three quarters of the 2008. The disconnect between falling demand and rising head count was likely a byproduct of the traditionally long lead-up time to associate hiring, as well as exceptionally low attrition throughout the year, Jones said. Thus, it's not surprising that many firms instituted staff and attorney layoffs in the fourth quarter of the year. The advisory projects that law firm demand will continue to be flat throughout 2009, and that more firms will face layoffs.

A broad economic recovery is unlikely to happen before 2010, but there is some good news for law firms. The legal industry tends to be one of the first to recover from tough financial times, and it can rely on countercyclical practices to help get through. The client advisory predicts increases in work related to new government regulations on financial institutions, legal issues tied to the Obama administration's economic stimulus package, litigation, bankruptcy and reorganizations. Some economists also are predicting that mergers and acquisitions will pick up.

Still, those countercyclical practices won't be enough to make up for shrinking demand for legal services, and the advisory predicts that law firm debt will grow in 2009.

"Citi Private Bank has reported its outstanding loans to law firms are up by 30 percent from a year ago, and its loan commitments are up by even more," the advisory reads.

But law firms should use the economic downturn as an opportunity to make some significant changes in their business models.

A firm should have a clear strategy that addresses how it will weather the economic downturn and what role it will play when the economy comes out of its slump. That strategic plan should involve identifying the firm's core practices, as well as its unprofitable practices.

Additionally, firms should move away from lockstep associate compensation models and instead consider competency-based models, the advisory suggests. Jones said that instead of increasing compensation by class year, an alternative model is to separate associates into three or four levels, determined by their specific skill sets. Associates then would move up the next level only after they acquired certain skills. Rising to the next level would trigger an increase in compensation.

"The legal profession is one of the last industries still to cling to this outmoded seniority based method," the advisory reads.

Firms should also focus on getting rid of lawyers who consistently underperform, and should consider expanding the use of contract attorneys and other nonpartner attorneys such as of counsel and staff attorneys. That could improve firm leverage and give the firm added flexibility.

Finally, the advisory recommends that law firms get serious about alternatives to the traditional hourly billing model. Corporate legal departments are clamoring for discounted fees or fixed fees as well as for more efficiency from law firms. Firms should address those concerns by reallocating people and resources to centers in lower cost areas and using contract attorneys, among other things.

Jones acknowledged that some firms will have a difficult time making the changes recommended in the client advisory.

"Most law firm leaders I've spoken with are concerned [about the economy]. They are in a mode where they have to hunker down and go back to some of the fundamentals," Jones said. "We've gone through a period where everyone got used to growth and expansion. People haven't really had to look at doing more with less."

              Law Firms Keeping an Eye on Client IOUS
       In Poor Economy, Bill Collection Requires Flexibility, Patience

Douglas S. Malan
The Connecticut Law Tribune
January 26, 2009

More law firms are feeling the need to have "the talk" with some of their clients.

The nationwide economic downturn has brought many businesses (and individuals) to their knees, drained the financial resources of others and, as a result, caused more clients to fall behind on paying legal bills.

In many instances, the trend became more noticeable in December, when some firms pull in as much as 30 percent of their annual revenue with year-end collection efforts. In other cases, there were obvious signs as 2008 progressed that collections were slowing.

"You want to work with clients through whatever problems they have at the moment," said Bill Maass, executive director of Finn, Dixon & Herling in Stamford, Conn. "Sometimes bills just get overlooked. Sometimes there's something more serious."

Among those firms noticing late payment problems are those that do extensive work in corporate financing, mergers and acquisitions and private equity deals. That describes much of Finn, Dixon & Herling's practice, and Maass said the 40-lawyer firm began noticing a slowdown in client payments last summer as the economy geared down.

Partners began reaching out to clients earlier and asking about the bills, which led the firm to change its general approach of waiting for payment in full.

"We've negotiated more payment plans under the theory that it is better to get paid over time than not to get paid at all," Maass said, noting that no client has stopped paying their bill entirely. By the end of the year, "our collections were very good," he said.

The payment plans range from splitting a bill between two monthly payments to allowing fees to be paid over the course of six months.

Maass said his firm believes that receiving payments in chunks is better than discounting the total cost in order to receive payment in one lump sum, though the downside is that the firm is essentially providing an interest-free loan to the client.

Maass expects the hedge fund industry to feel the strain this year after so many years of incredible growth, and in general, payment plans will be more popular in 2009.

"Sometimes it's just the best result for a bad situation," he said.

Axinn, Veltrop & Harkrider, a complex litigation and trade regulation firm, has used payment plans for certain clients. But most clients are paying in full "within 30 to 60 days" of the bill going out, said James Veltrop, a partner in the firm's 30-lawyer Hartford, Conn., office. Still, that month or two lag time for payment is longer than in years past, he said.

The first indications of slower payments among clients came in the second quarter of 2008, but "we haven't seen the need to make any drastic changes in our collections process," Veltrop said.

"For the most part, our clients are paying on time or a little bit slower, but collections have been good. I don't think it will be worse in 2009. I think we're seeing it even out now."

Alfred A. Turco, managing partner of business, litigation and construction firm Pepe & Hazard, has not detected a slowdown in receivables, and he credits his Hartford-based firm's financial risk management committee with staying on top of accounts and relationships with clients.

The firm made news last month when it announced it would freeze billing rates for existing clients for all of 2009.

Payment plans have always been an option for Pepe & Hazard clients, Turco said, and the details of each plan in terms of time needed to pay off a debt are specific to the client. Pepe & Hazard also provides the option of discounted prices, where warranted.

"On occasion, we have offered a discount in recognition of a lump sum payment of an older receivable," Turco said. "The discount recognizes the present value of extinguishing the obligation. As a matter of course, the firm offers a prompt payment discount for invoices paid within 30 days."

The firm probably will remain as flexible with its clients as possible this year, Turco noted. "We have been cautious in budgeting for 2009," he said. "Intuitively, one would expect collections to require more effort on the part of this firm."

One of the state's largest firms, Robinson & Cole, instituted a managerial position about five years ago that is responsible for coordinating the bill collections process. The manager sends out monthly reports to attorneys with notes about efforts made to collect bills and the status of those bills. Additionally, members of the firm's management committee meet quarterly with practice group leaders to review receivables, said Managing Partner Eric Daniels.

"That's a process we've been doing for two or three years as a good business practice," he said. "We have tried to stay on top of that."

Daniels said it has worked well, especially in 2008 when collections were strong. The firm has found no need to offer payment plans or discounted rates, Daniels said, but that hasn't stopped high-end collections agencies from asking if they can assist in the process.

These agencies typically work for a commission and operate discreetly, appearing to be an employee of the firm. One anonymous law firm partner told American Lawyer that the agencies are "a great tool to have" and one that his firm relied on more often in 2008.

"We get those solicitations from time to time, but we've never used one of those agencies," Daniels said. "We have a higher level of comfort [using our employees to collect bills] than if we outsourced to another company."

Cummings & Lockwood in Stamford also employs a collections coordinator to push for payment when necessary.

"It's sometimes helpful to separate lawyers from collecting because they don't enjoy doing it or they're not geared to do it," said Jonathan B. Mills, who is chairman of the firm.

But lawyers aren't off the hook at Cummings & Lockwood. In fact, "we push our partners to bill clients monthly," Mills said, because clients can easily forget the amount and quality of work a lawyer did for them when the bills don't arrive regularly. "When you have long, delinquent billings, it's much harder to collect on those. We've tried to make sure that bills go out in a timely fashion with appropriate follow-ups."

Collections for the firm's definitive trusts and estates practice have been strong, but that's not to say some clients don't fall behind on occasion, Mills said, to which the firm responds with payment plan options.

Mills wouldn't say if his firm would need to be more flexible with clients this year, but he is certain that collecting bills will remain a popular topic of conversation.

"This is an ongoing issue for all law firms," Mills said. "I think all firms are cautious about 2009."

Ka-Chinging in the New Year!:
BigLaw Partners Seek $1,100 Per Hour in Bankruptcy

By Zach Lowe
The American Lawyer
New York Lawyer
December 31, 2008

Hat tip to the Chicago Tribune, which scoured papers filed Dec. 26 in the Tribune Co. bankruptcy and found that the company has been paying Sidley Austin for work on a possible restructuring since March -- just three months after real estate magnate Sam Zell took Tribune private in a leveraged buyout.

On Nov. 24, about two weeks before Tribune filed for Chapter 11 protection, the company paid Sidley an advanced retainer of $3.5 million, which was intended to cover fees incurred since March, court records show. On Dec. 4, with the filing days away, Tribune increased that retainer by $1 million.

As always, The Am Law Daily was drawn to the hourly rates Sidley is charging the bankrupt media conglomerate. As of Jan. 1, those rates will be: $575 to $1,100 for partners; $400 to $875 for counsel and senior counsel; between $240 and $650 for associates; and $95 to $385 for "para-professionals."

In a declaration, James Conlan, co-chair of the firm's restructuring group, charts the work Sidley has done since March and characterizes that work as "services rendered in contemplation or in connection with the restructuring efforts of the Debtor and the filing of these Chapter 11 cases."

That would seem to indicate that the work was done in preparation for a possible bankruptcy filing, but a Tribune spokesman told the Chicago Tribune that "much of the work described in the application had nothing to do with the contemplation of a possible bankruptcy proceeding." Seems the company and its flagship paper disagree. Conlan did not immediately return messages seeking comment.

Several other law firms filed papers last Friday outlining the work they'll be doing for Tribune and how much it's worth. McDermott Will & Emery has received a $500,000 retainer to work on general legal matters, including the sale of two Tribune assets not included in the filing: the Chicago Cubs baseball team and the Food Network. McDermott's rates ($445 to $1,010 for partners; $285 to $590 for associates) are on par with Sidley's.

Also on board: Paul, Hastings, Janofsky & Walker, which will tackle real estate work linked to the bankruptcy. The top partner on the matter, Richard Chesley, will earn $825 per hour (the least expensive partner gets $765), while three associates will make between $405 and $560 per hour.

Reed Smith is doing insurance work for Tribune; separate rates for partners and associates are not provided. The firm simply lists "attorneys," who it says will earn between $245 and $905 per hour.

Jenner & Block is on a $150,000 retainer to cover litigation work (though Tribune has already paid the firm about $1 million in the past year); Jenner & Block will charge between $525 and $1,000 per hour for partners and $325 to $535 for associates.

$285 an Hour for a Summer Associate?:
Firm Goes to Court Over BigLaw Rival's Billing Rates

By Sheri Qualters
The National Law Journal
New York Lawyer
December 24, 2008

Sullivan & Worcester is taking its court fight with Dewey & LeBoeuf over Dewey's proposed fees in a federal securities receivership case directly to the U.S. Securities and Exchange Commission (SEC), and is asking the court to hold a hearing about the fees.

The Boston-based Sullivan & Worcester originally filed an objection to New York-based Dewey's fees on Dec. 1 in U.S. District Court for the Southern District of New York on behalf of a client company that is an investor and creditor of the company now in receivership. Sullivan & Worcester opposed partner hourly billing rates of up to $950, associate rates up to $605, a summer associate rate of $285 and paralegal rates up to $275. Dewey partner Timothy J. Coleman, a New York and Washington attorney who co-chairs the firm's white-collar criminal defense and investigations practice group, is the receiver and he hired Dewey to perform the receivership legal work. SEC v. Byers, No. 1:08-cv-07104 (S.D.N.Y.)

On Dec. 22, Sullivan litigation partner Barry S. Pollack and associate Joshua L. Solomon sent a letter to SEC Chairman Christopher Cox and the court opposing the SEC's recent court brief defending Dewey's fees.

Sullivan's letter said Dewey's rates were "nearly double those in other receivership cases in the pertinent jurisdiction."

"In sum, the purpose of receiverships is to protect the interests of victims, not to ensure that large law firms overcome office closings, layoffs, suspended distributions, and internal strife, or that they remain high in the AmLaw 200 with average profits per partner in excess of $1.5 million," wrote Pollack and Solomon.

Sullivan & Worcester also sent a letter to the court objecting to the payment request on Dec. 19. Sullivan & Worcester asked the court to hold a hearing on the fees if it doesn't reduce fees for Dewey and the receiver for the first 20-day period from more than $2.2 million to less than $1 million.

Dewey and the SEC both declined comment.

The SEC's fraud case is against private equity company Wextrust Capital, a couple of its owners and executives, and affiliated companies whose targets included the Orthodox Jewish community in New York. The SEC accused the company of conducting fraudulent private placements and numerous violations of federal securities laws.

Following Sullivan & Worcester's objection, and letters from Dechert and Boston's Brown Rudnick Berlack Israels on behalf of other creditors, U.S. District Judge Denny Chin issued a Dec. 15 order questioning the hourly billing rates that Dewey used to arrive at a $478 per hour blended hourly rate.

Chin ordered the firm to explain the 5,503.15 hours worked during the first 20-day period in August. Chin also asked the SEC to submit a written brief explaining whether it supports Dewey's fee application in the receivership case.

In a Dec. 18 brief, the SEC argued that the complex case required Dewey to quickly investigate 10 of the targeted company's offices in the United States, Israel and South Africa.

The SEC's brief concluded by noting that it is negotiating with Dewey over its second fee application, which hasn't been submitted to the court. The SEC brief said that agency staff has "identified certain issues with respect to staffing levels, categorization of work as legal or non-legal receivership work, and in limited instances fees for work that should not be billed to the receivership."

Despite these concerns about Dewey's second fee application, the SEC's brief defended Dewey's first fee application by noting that "the staff is not aware of any basis to question whether another full-service New York City law firm could have or would have performed the same services at a lower cost."

In its Dec. 18 brief, Dewey said that the firm and Coleman haven't been able to locate billing rates in similar receivership cases because the Wextrust case involves a large number of operating businesses that the receiver must manage and preserve.

Dewey said its total fee discount is 21% for the case, largely because Coleman's work is being charged at $250 per hour instead of his usual $850 per hour. The brief emphasized the complexity of issues, the "extremely short time" that Dewey had to do certain work and the need to coordinate with numerous federal agencies.

"The rates charged were reasonable and correctly reflect the degree of skill required and the urgent need to perform particular tasks at the earliest possible time in accordance with the Receiver's business judgment," the brief said.

More Clients Demanding More Choices on Billing

By Julie Kay
The National Law Journal New York Lawyer
November 12, 2008

When Burger King Holdings casts around for outside attorneys, it includes this wish in its request for proposals: "We don’t necessarily believe the billable hour is the most efficient way of billing, so please suggest some alternative and creative billing methods."

So far, the $2 billion fast food company has been able to have it their way.

The company, which spends millions of dollars on legal fees every year, has negotiated a variety of alternative billing methods with such firms as Greenberg Traurig, Holland & Knight and Genovese Joblove & Battista in Florida; Sher Garner Cahill Richter Klein & Hilbert of New Orleans; and Jackson Lewis and Kelley Drye & Warren of New York.

Alternative arrangements include fee caps, blended rates and monthly retainers.

"We always feel pressure to keep legal fees as low as possible," said Craig Prusher, Burger King’s vice president and assistant general counsel in Miami. "After all, the legal department is never a profit center."

Burger King has had great success with law firms willing to be creative in their billing even though some New York and Los Angeles firms have refused to deviate from or discount their standard billable hour rates of $700 or more.

The company is not alone.

What has been a slow and steady call by many corporations, in-house counsel and legal think tanks to law firms to abandon the billable hour in favor of alternative fee arrangements has turned into a loud drumbeat in the past year as the economy heads south.

Many law firms are offering clients an array of alternative fee arrangements including flat fees, success fees, contingency fees and retainers. Even some large law firms, which have clung to the billable hour, are bowing to pressure from economically challenged clients and agreeing to other types of fees.

Still other corporations such as AT&T have simply asked all outside law firms to accept across-the-board cuts. Those that "agreed to share our pain ... are still with us today," said Patricia Diaz Dennis, senior vice president and general counsel for AT&T.

"Firms are going to need to be more creative about fees in the future, no question," said Bruce MacEwen, a New York-based law firm consultant. "As clients get more demanding about fees, you can be more creative. One of the things you’ll see more of are success fees, or a discount for a high volume of business — we’ll give you a break if you give more business to us."

Yet the problem is not simple to solve. Although corporations give lip service to alternative fee arrangements, many wind up sticking with the billable hour rather than trying something new.

"Lots of clients’ lips are moving, but their feet aren’t moving," said Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel, which has called for alternative fee arrangements to be accepted by all parties. "There is a huge push by everyone to do this. People assume that we’re pointing our fingers just at the firms. But we have the guns at ourselves, too."

Before the billable hour, the retainer was the standard fee arrangement for law firms, and it could be making a comeback.

"We’ve actually had a number of clients say as of late, ‘We’d like to put you on a retainer,’ " said Sheryl Willert, managing director at Williams Kastner, a Seattle-based law firm of 100 lawyers. "What’s wrong with the old-fashioned retainer?"

The billable hour is despised by most associates who are required to bill a minimum number of hours a year to qualify for bonuses, and the system is criticized by many clients afraid of calling their lawyers and starting the clock ticking.

The hourly rate has steadily grown, and several New York lawyers claimed bragging rights last year for reaching the $1,000 mark.

In recent years, groups such as the American Bar Association, the Association of Corporate Counsel, corporate executives and even U.S. Supreme Court justices have called for the demise of the billable hour, saying it breeds inefficiency and is driving up legal costs.

As part of a "values initiative," ACC plans to encourage firms to deep-six the billable hour model in favor of value-based alternatives and will carefully monitor fees in the next year to determine whether alternatives become more common.

"The majority of firms are still on the hourly basis," Hackett said. "But the timing of this project couldn’t be better. No one wishes the economy to suffer, but people are being forced to go into their budgets and see how they can save money. I think our project will succeed."

Some large law firms, which have resisted change, appear to be starting to slowly offer clients alternatives in response to client desires for budget certainty.

For example, Morgan Lewis & Bockius and Mountain View, Calif.-based Fenwick & West agreed to fixed-fee arrangements with Cisco Systems. Morgan Lewis handles litigation matters, and Fenwick & West handles securities and mergers and acquisitions. By working with outside counsel on alternative-fee arrangements, Cisco has reduced its legal fees as a percentage of revenue by more than 20 percent in five years, according to Mark Chandler, Cisco’s general counsel.

Tom Sharbaugh, managing partner for operations at Morgan Lewis, said his firm would like to have more fixed-fee arrangements but gets some resistance from clients.

"For all you read about it, clients often shy away from the fixed fees when we propose them," he said. "There’s a fair amount of discussion about them, but frankly there’s not as much fixed-fee arrangements as we would like to have. I don’t see the billable hour dying."

Trading Places

By Douglas S. Malan
Connecticut Law Tribune
New York Lawyer
November 13, 2008

The number 8.66 hung over attorney Anthony Kornacki’s head in oppressive fashion, dictating how he spent each day and with whom. It was the average number of daily billable hours he needed to log in order to meet his law firm’s annual requirement of 2,100.

Newly married in August 2007, Kornacki often missed out on dinner with his wife. He packed his PDA on vacation to keep in touch with the office because any amount of time he spent not billing had to be made up when he returned. And after he left the office at 7 p.m. most nights, there often were bar association and chamber of commerce functions to attend to generate business leads. The thought of starting a family and then missing out on time with his kids while at the law firm was too much to consider.

So when he was one of 26 associates laid off firmwide by Thelen this past March, Kornacki, who worked in the Hartford office, considered how his professional and personal goals could be more in synch. He decided going in-house for XL Insurance in Hartford was the best career move.

"It’s all of those stressors that factored into the equation to go in-house," said Kornacki, 33, who is claims counsel for XL and defends private companies in employment disputes around the country. He is part of a legal team of 25 attorneys that manages litigation.

Increasingly, going corporate seems to be a rite of passage for frustrated associates who have spent five or more years at a law firm. When economic times are good, maybe the law firm stress is worth the paycheck. But perspectives change when law firms get battered by Wall Street. And seeing law firms that were once worth hundreds of millions of dollars going up in flames in a matter of months—such as Thelen—can cause lawyers to seriously consider their options.

"In a down economy, when you start to see large-scale layoffs and offices closing their doors, you start to think that maybe my position isn’t as secure as I thought it was," Kornacki said.

"I am absolutely" hearing of other lawyers considering a move in-house, he added. Most of them are associates with five to eight years of law firm life under their belt. "They’re very inquisitive about working in-house and how I found the position, and they’re very interested in positions like mine that are out there."

Serious Considerations

But as many recruiters and some in-house attorneys say, the decision to leave a firm for corporate position is no slam dunk. Economic pressures can be even more acute in businesses than in diversified law firms, and when companies look to make cuts, often the in-house lawyers are at the top of the list because they’re overhead costs rather than revenue-generating positions.

"[In-house] lawyers are not considered critical to a company. They’re a luxury," said Stewart Michaels of Topaz Attorney Search in New Jersey. "It really is false hope that attorneys have that [going in-house] is the panacea for them. Law firms may have problems but they’re a lot more stable than corporations."

Then there’s the salary discrepancy.

Vanessa Vidal, who is president of Atlanta-based ESQ Recruiting with offices in New York, said that lawyers transitioning from large national and international law firms can expect salary reductions of 50 to 70 percent. She noted that median base salaries for in-house lawyers with at least five years’ experience is between $100,000 and $150,000.

This is often a shock to lawyers who were at firms that paid $160,000 to first-year associates, York noted on her blog. Several years of escalating rookie salaries "have done little to provide law firm attorneys with a realistic understanding of their worth in the corporate legal market."

James Kaiser, of Kaiser Whitney Staffing in New Haven, said he isn’t yet noticing increased movement by attorneys from law firms to companies but believes it’s "likely" that such switches will occur in 2009 as financial struggles intensify at law firms.

The attorneys who come to Kaiser often are "bored of doing the same thing and generating revenue for the firm," and they would rather put their skills to use for a company. His clients include "people wanting to get away from the firm culture," he said. "It can be an associate who is delayed on the partner track and doesn’t want to subscribe to the [law firm] politics anymore."

Attorney Greg Holness desired a legal role in which he could get more involved with the business end of a company and affect the company’s direction.

Earlier this year, he joined the Permasteelisa Group as general counsel at its global headquarters in Windsor after leaving Thelen. His new position with the engineering and architectural firm provides exposure to a breadth of areas of the law, including employment, commercial and banking.

"I was looking to join a good company," Holness said. "It was really not a long-term plan [to go in-house] as much as it was a matter of serendipity. Actually, it’s the only job that I applied for. It’s nice to step out [of law firm life] and get a change of pace."

Belt-Tightening

One of the main attractions of in-house life is the predictability of hours and compensation, but that usually doesn’t equate to a cushy position.

"I actually work more," Holness said, with 11- and 12-hour days being the norm. But he has no qualms about the hours relative to his compensation.

Kornacki is logging about 10 hours a day, but he knows his days will end at 6 p.m. followed by dinner with his wife. There are no billable hour pressures or requirements to glad-hand at a social function.

"I know a lot of attorneys who don’t [go home for dinner] or can’t do that or they come home for dinner and then have to go back to work for two hours to reach their billable hours for the day," Kornacki said. "I love the practice of law, but I just didn’t enjoy the business of it. I think many others are in the same boat."

That common thread ran through this year’s associate survey conducted by American Lawyer, sister publication of the Law Tribune. Increasingly, associates are disenchanted with the intense demands on business-building that are required to become and remain equity partner at many law firms.

"Partnership is no longer the lifetime guarantee that maybe it once was," one Dechert associate told the magazine on an anonymous basis.

And given the right situation, attorneys certainly can find happiness in-house, according to numerous blogs and chat rooms discussing the matter. Kornacki agrees, and notes that the right in-house opportunity can provide assurances that a law firm can’t.

"In this climate, that steady income becomes more important to people," he said.

Kenneth Bunge, a former in-house attorney with United Technologies Corp. and current president of the Connecticut chapter of the Association for Corporate Counsel, said this might not be the best time, in general, to consider going in-house because of companies’ budget concerns. He hasn’t heard of much hiring activity from his membership.

"The problem I see with 2009 is that law departments and companies are going to go through some pretty tough belt-tightening for the first time in 10 years," he said. "It won’t be too uncommon to see hiring freezes."

But Kornacki says lawyers burned out on law firm life should consider moving in-house if they can find an opportunity. "I can’t imagine going back" to a law firm, he said. "I’m singing the praises of in-house to everyone I see."•

We Were Told You'd Bring Billables

By Dan Binstock
Legal Times
New York Lawyer
November 6, 2008

WASHINGTON - In this slowing economy, lateral associate hiring is down while the desire for lateral partners with portable books of business is thriving. The key phrase here is "portable books of business"—meaning billable work that the partner will be able to bring from the old firm to the new one.

Yet almost all lawyers squirm at the thought of answering "What are your portables?" during a lateral job search. It’s difficult to boil your practice down to one number. But there is an easy solution for those of you facing this dreaded four-word question—and those of you trying to get a useful response out of that squirming interviewee.

You Can't Say

As an attorney search consultant, I’ve had so many conversations with partners worried about the implications of estimating their book of business. They raise a host of reasons why they can’t put a concrete figure on it. Here are just some of the most common concerns I hear:

• I’ll lose either way: "If I’m too conservative, I’m underselling myself and falling short of the prospective firm’s minimum portable requirements. If I’m too optimistic, I risk setting the bar too high and will walk into the firm with a target on my back and the firm will end up thinking I was dishonest." (This is by far the most common response.)

• The past does not equal the future: "I collected $2 million from Client X last year, but they just settled a big case so I don’t know how much work they’ll have next year."

• They are not just MY clients: "My clients really like me and say they are pleased, but I don’t want to promise they’ll come with me. They do work for a few other partners as well so it’s tough to say."

Another variation: "I’m not sure how many clients will actually come with me, and I don’t want to risk asking them either since they’ll know I’m looking to leave and may resist sending me further business even if I don’t."

• It all depends: "My book of business will depend on which firm I move to, whether there are conflicts, their billing rates, their reputation, their platform, etc."

• I refuse to guesstimate: "It’s too tough to predict with any accuracy, so I don’t want to offer a figure at this time."

These are all very understandable and very valid concerns. But there is one basic fact that many lawyers looking for a new home don’t seem to fully appreciate: Books of business are, by their very nature, inherently speculative. No one—not just you—can set an exact figure on future billings.

No matter how hard you try, predicting what, if anything, your current clients will ask you to do once you shift firms is as precise an exercise as predicting the weather. There are too many moving pieces outside your zone of control to say for certain where the rain will fall.

Yet most lawyers, whose careers are based on being precise and accurate and in control, get thrown for a bit of a loop when they have to try to specify an inherently speculative figure. (Self-worth and pride also get thrown into the mix.)

Three Scenarios

So instead of getting caught up with calculating one perfect number, make it much easier on yourself. Provide three different numbers.

The first is your optimistic scenario—what your book of business will be if all the chips fall in your favor. All of the clients you were hoping to bring with you actually end up following you to your new firm, your cross-selling and business development efforts succeed handsomely, and your practice blossoms in the most favorable way. This is the future through rose-colored glasses.

The second figure is your conservative scenario—or, more accurately, your worst-case scenario. All the clients who you believed would join you at your new firm decide not to follow you. Maybe unforeseen conflicts arise—not only conflicts from a legal ethics standpoint, but historical tensions that developed years ago between a particular client and your new firm. Perhaps the new firm is not on the client’s "approved law firm" list, and it’s not clear whether the new firm would be able to get on that list once you join. Maybe the client declines to work with a different billing structure or has unanticipated and deeper loyalties to your prior firm.

The third is your realistic scenario—which is simply the average of the optimistic and conservative scenarios. Do not, however, use an average if you have one major client that accounts for most or all of your business. In that case, your book of business is more of an all-or-nothing proposition.

I have worked with partners who had a very wide spread, ranging from $2.5 million on the optimistic end to $300,000 on the conservative end. If you do have that one dominant client, your optimistic-to-conservative spread might be several million dollars to zero. That is why firms often prefer to hire a lateral partner with a $3 million book that consists of 10 smaller clients over a lateral partner with a $3 million book containing one really big client.

Just An Estimate

Firms that are hiring understand that predicting a book of business is hardly an exact science, much as they would like it to be. They also understand that books of business can be subject to exaggeration. On a number of occasions, I’ve had firms say, "Well, if this guy says the book of business is $2.5 million, it’s probably realistically around $1.5 million." When firms are calculating starting compensation for new lateral partners, I can assure you that the chief financial officers are not relying on the optimistic scenario.

The wish not to sign on excessively optimistic laterals is also why, later in the process, most firms require potential hires to fill out due diligence questionnaires that drill deep into the lawyer’s practice. To gain a much more accurate understanding of your business, firms will ask for specifics such as your total billings for each of the past three years, your collections for each of the past three years, your realization rate, your billing rates (and whether they differ for certain clients), descriptions of your clients, the length of those relationships, and your billings thus far in the current year.

Unfortunately, the pressure of having to set a number on their book of business (and the fear of getting it wrong) can unnecessarily paralyze partners from considering other options. It doesn’t need to be that way. The three-scenario approach to explaining books of business offers you the best of all worlds.

Instead of playing hide the number, you can express your optimistic goals without the fear that you are being misleading or one-sided. The hiring firm hears that you are both realistic and positive about the future. With that balance, the conversation between partner looking and firm hiring is bound to go more smoothly.

Dan Binstock is managing director of the Washington, D.C., office of BCG Attorney Search, where he handles partner, practice group, and associate placements. Prior to legal recruiting, he practiced in a large D.C. firm.

Top NY Firm Reports Surge in Revenues

By Sofia Lind
Legal Week
New York Lawyer
February 6, 2008

LONDON -- Paul Weiss Rifkind Wharton & Garrison has become the latest US firm to announce it 2007 financial results, unveiling an increase in revenue of nearly 10%.

Turnover at the New York firm was up by 9.6% from $594m (£302m) in 2006 to a new mark of $651m (£331m).

Profits per equity partner (PEP) improved more modestly, growing by 4% from $2.50m (£1.27m) to $2.60m (£1.32m), with the number of partners at the firm having increased from 109 the previous year to 111.

Revenue per lawyer (RPL) increased by 3%, up from $1.04m (£529,000) to $1.07m (£545,000), with total lawyers at the Manhattan firm climbing from 573 to 610.

Paul Weiss chairman Alfred Youngwood attributed the increase in turnover to "a balance between the practices", saying the firm’s litigation, transactional and bankruptcy teams had all performed well in 2007.

He added: "We have started out strong [in 2008]. It is hard to predict the next eleven months [but] our expectation is steady, moderate growth in size, revenue and profits."

The 2007 numbers represented an increase on the more modest growth in 2006, when Paul Weiss’ turnover increased by 6% and PEP by a mere 1%. In 2005, however, the firm showed double-digit growth for both revenue and PEP, with the corporate group singled out as a strong performer.

More Bad News From the "Shark Tank":
Profits Drop After Layoffs

By Charlotte Edmond
Legal Week
New York Lawyer
February 6, 2008

LONDON -- Cadwalader Wickersham & Taft has become the first firm to take a hit on performance in 2007, with average partner profits at the New York firm falling by 6% to $2.72m (£1.38m).

Figures unveiled by Cadwalader today (5 February) show average profits per equity partner (PEP) at $2.72m 9£1.37m) for 2007 – a fall of 6% from the previous year’s mark of $2.9m (£1.48m).

Overall revenue at the firm increased marginally, edging up by 5% to reach $587m (£299m) from $556m (£283m).

Net profits at Cadwalader stood at $207m (£105m) to be shared between the firm’s 76 equity partners. In addition, the firm’s 28 non-equity partners shared a further $18.5m (£9.4m).

The news comes with Cadwalader having made a series of cutbacks in recent weeks.

Last month the firm axed 35 structured finance lawyers in the US in a move it blamed on "unexpected and persistent volatility" in the financial markets that was disrupting the activities of many of its clients.

The firm also made a round of redundancies in London, removing a number of support staff in cuts thought to have affected its secretarial and administrative function. It is understood the office is strongly resisting any lawyer redundancies in the UK.

In better times, Cadwalader Chairman Robert O. Link dismissed the firm's "shark tank" reputation in an interview, saying the firm was a "meritocracy."

Meanwhile, fellow US law firm Wilmer Cutler Pickering Hale and Dorr has announced its own financial figures for 2007. Turnover increased by 5.2% to a new high of $944m (£480m), while PEP improved by almost 9% to reach $1.06m (£538,480).

BigLaw Firm Freezes Some Salaries
as Year-End Cash Falls Short

By Alana Roberts
Daily Business Review
New York Lawyer
February 5, 2008

Greenberg Traurig fell $10 million short on year-end collections and will leave salaries "at present levels until we get a better financial picture for 2008," chief executive officer Cesar Alvarez wrote in a memo to the firm's lawyers.

The year-end memo caused an immediate stir among associates, prompting Alvarez to quickly send a second note to the firm's 1,750 lawyers saying that he was not freezing associate pay. Associates typically get a raise each year as they become more experienced.

Alvarez told the Daily Business Review that the salary freeze at Miami-based Greenberg is for equity shareholders only.

The internal memos sent Dec. 30 were leaked to the blog Abovethelaw.com, and a copy was obtained by the Review from the blog.

The initial memo was a series of mixed messages praising the employees but warning about "significant challenges" posed by the souring economy and cost-cutting pressures in the legal industry.

Alvarez cited the "wonderful strides" made by the firm, but the memo looked ahead to "this year of uncertainty" and warned about the "need to watch every dollar" and "manage conservatively for the greater good."

In his memo, Alvarez said the firm had already collected $313.5 million and projected to finish December with $330 million in collected billings -- "a great accomplishment when you consider the housing situation, the subprime issues and the dislocation of the credit markets." The firm was hoping to collect $340 million.

In an interview, he said the firm had its best year ever, 2007 revenue exceeded the firm's budget projection by $19 million, and revenue is expected to be up by double digits this year.

But the memo said "vocal" clients are "taking action on the perceived high cost of legal services" by asking for lower bills and lower hourly rates or specifying experience levels for professionals assigned to them.

His references to pay were chilling to some.

"We have tried to compensate everyone fairly, and we hope that next year will be no different," Alvarez wrote. "More will be asked from each of you, and if you answer the call and help our firm have a good year by working efficiently and doing more, we will do our best to reward those who did their part."

The memo has been a topic of discussion among Greenberg attorneys, but it hasn't created any deep concern about the firm's future, said one of the firm's South Florida lawyers who asked not to be identified.

"People are definitely talking about it," the lawyer said. "They haven't seen any signs yet. No one's too nervous."

But it left people wondering about potential layoffs. Cadwalader Wickersham & Taft opened the door last month by getting rid of 35 capital markets and structured finance lawyers.

The anonymous Greenberg lawyer is hoping for the best, saying: "We think it's more worry ahead of time so we can avoid the worst in the future. If we cut back now, we can avoid layoffs in the future."

In an interview, Alvarez acknowledged a need to warn of "a potential slowdown." But he said the firm hasn't had a down year since 1967 and has flourished in past recessions because of prudent management.

By taking a cautious approach to the year, he said, "If we're prepared and nothing happens it will make us much better, and if it does happen we won't have a bad year."

Greenberg joined a short list of law firms with more than $1 billion in revenue in 2006, according to American Lawyer's latest revenue figures.

The firm ranked No. 10 of the Am Law 100 with $1.04 billion in revenue in 2006, up 21 percent from the year before.

But Alvarez concedes market forces in the legal industry aren't in favor of growth. With hourly rates climbing, billable hours are flattening, collection rates are down, firms are seeing tandem growth in expenses and revenue, and clients are demanding alternative rates and discounts.

"If you look at the last five to six years, there are five levers that move a law firm to have good financial results. Four are flat or negative, and one is moving in the right direction," he said.

Although Greenberg is already managed and operated more like a business than many other firms, Alvarez said firm managers will keep an even sharper eye on workload and productivity this year.

He said the 30-city law firm is better able to manage itself because it has a wide range of practice areas, which allows the firm to shuffle lawyers in less busy practice areas to other more robust areas.

"We respond by doing a number of things by making sure that we look at our capacity and our workloads, and instead of doing this on a monthly basis we now do that on a weekly basis," Alvarez said. "The monitoring of your performance on a much closer basis as far as capacity is critical."

Other tactics the firm is using to better manage itself is to be more flexible with client demands for alternative fee structures, more closely examine the number of lawyers assigned to a client and be more mindful of billable hour rates when determining how many lawyers work on a client's matters. He also said the firm will look to more efficiently utilize its office space in the future.

Alvarez said his memo was widely distributed because of his policy of keeping everyone at the firm informed about the firm's business and expressed some annoyance with the leak.

"It was confidential to the firm," Alvarez said. "Somebody's decided to send it outside the firm, but that's the way life goes nowadays. I'm not the least embarrassed that this went out of the firm."

Alvarez's concerns about the economy were echoed in a client advisory based on a survey by Citi Private Bank and Hildebrandt International last month. The report indicates the legal industry is facing slower productivity and a drop in structured finance, merger and acquisition, and other transactional work coupled with noticeable growth in litigation and bankruptcy and reorganization work.

Alvarez is hardly the only managing partner worried about the uncertain economic picture.

"Economics are always of concern. When the economy is booming or the economy is slowing down, we're always looking at how we're doing," said Harvey Gurland, administrative partner of Duane Morris' 30-lawyer Miami office. "Can we manage ourselves better?"

After Law School, Do You Have to Be a Lawyer?

By Petra Pasternak
The Recorder
New York Lawyer
February 4, 2008

Jason Luros graduated in the top 20 percent of his class at Golden Gate University School of Law in 2007, with a portfolio of internships including business and intellectual property law experience and work abroad.

Given the impression from professors and career counselors that he was doing fine and that law firms were hiring, Luros said that he was surprised at the feeble job market that greeted him on return from Europe last summer. Most of his interviews were with firms of five to 30 attorneys -- and they weren't hiring.

"All the opportunities that I heard about required active bar membership and a lot of experience," Luros said.

En route to an interview at a small Napa, Calif., law firm, Luros decided to pop into the office of a financial services firm and fill out an application. After three rounds of interviews, the firm offered him a job as a financial planner and started him on a training program. Luros said he hopes to eventually make a salary comparable to lawyers at big firms, but declined to publicly describe his pay. A recent ad for a similar job listed a base salary that ranged from $30,000 to $80,000.

Luros is among the minority of law school graduates who, for one reason or another, embark on a career path away from law practice.

The latest statistics from NALP (.pdf), which tracks law grad placement nationwide, show that more than 55 percent of 2006 graduates went on to private practice. Nearly 10 percent opted for judicial clerkships, another 10 percent went into other government jobs and about 5 percent pursued public interest law.

But about 14 percent took jobs in business. According to NALP Executive Director James Leipold, that covers a wide range of jobs, including legal and nonlegal positions in accounting and insurance firms, banking and financial institutions, Fortune 500 corporations, private hospitals and political campaigns.

University of San Francisco School of Law Dean Jeffrey Brand says that segment might soon see growth. He sees an employment trend on the horizon that will have graduates from nonelite schools taking a harder look at careers outside the law.

With the economy's recent downturn and mushrooming overhead costs, he thinks law firms will be scaling back job offers.

"What I've heard from firms is that the associate economic structure they've created is destined to collapse," Brand said. Alumni are reporting that large national firms are increasingly hiring laterals or experienced lawyers on a contract basis, he added. "There are fewer associate positions for recent graduates," Brand said. "It's going to require them to be more resourceful in figuring out what they're going to do."

Roberta Kass, a legal recruiter at Los Angeles-based Seltzer Fontaine Beckwith, said it's too soon to tell whether law firms are tightening their belts.

Students who graduate in the top 10 percent at nonelite schools normally would get attention from clients even in a slow economy, she said. "In down times, maybe they'll raise the bar," by narrowing their pool to the top 5 percent.

Putting Passion Over Pay

Gregory Blaine never intended to be a lawyer.

In the 1980s, he was a vice president at Coldwell Banker in Los Angeles.

"I thought that the way to get into the top ranks of this corporate real estate game was to add an advanced degree," he said.

But upon receiving his J.D. from USF in 1991, Blaine found an even better opportunity: staying in the San Francisco Bay Area to work for a real estate investment trust, or REIT, supervising property management for its Midwest and East Coast regions.

He believes that he could have landed the same type of position without a J.D., but said the benefits of the degree were obvious. "It helped me work with the in-house legal department much more efficiently, by helping me to understand their challenges better." He now works for himself, running a real estate investment business in Portola Valley, Calif., where he acts as chief executive (and the legal department).

As Blaine saw an upside to having a J.D. in the real estate field, others use it as an entry into politics.

Molly Claflin, a third-year at Stanford Law School, currently works on the Barack Obama presidential campaign and plans to work for whoever becomes the Democratic nominee after graduation. She said she's eyed a career in politics and public policy since middle school and thought an understanding of law, as well as the connections she would make in law school, would help.

Claflin said she believes she'll be able to afford the low pay on the campaign trail -- you're lucky if you get $50 a week, she said -- because her scholarships have kept her debt down to $46,000. And the campaign work is a stepping stone to her bigger dream: Although she hasn't ruled out practicing law, her ultimate goal is to work in the White House policy office.

But she is a rarity among her peers. "I think just about everyone is going the firm route," she said. "It seems to be the fallback." She added that the career center, with its law firm focus, has been of little help -- one reason Claflin believes so few go down other roads. "It's pretty daunting to be looking for alternative careers, and you're pretty much on your own in trying to find them."

Rachel Knight, a self-dubbed social entrepreneur almost three years out of law school, has more global ambitions.

In 2001 Knight was working in a family advocacy program at a Boston medical center, helping to train hospital staff in legal advocacy and drafting pamphlets to inform patients of their legal rights, among other things. Knight says she realized that if she was to help bring justice to the poor, she would have to understand the law.

During her studies, she helped set up similar medical-legal partnerships in the San Francisco Bay Area that bring legal aid lawyers into pediatric clinics. After earning her J.D. at Boalt Hall School of Law in 2005, she took a post as an Equal Justice Works fellow at the Legal Aid Society of San Mateo County.

While Knight hopes to one day spread the legal-medical partnership paradigm to developing countries, she is currently doing contract-based consulting for the Food and Agriculture Organization of the United Nations.

She says the work is fascinating, but also admits it's sometimes hard to make ends meet. Some days, she asks herself why she didn't get the $160,000 job.

But, "I'm young, I have no kids, no mortgage," she said. "Now is the time to try my hardest to live out my dreams." She's considering moving away for a while to a place where her cost of living will be lower. Mozambique, where she spent a year studying abroad, is high on her list.

"I think that law students and lawyers feel that they don't have a lot of choices, but they do," Knight said. "Work in a firm for three years, pay all your debts, then go do what you want. ... We're our own biggest obstacles."

Silver Haired Partners Hunting
Gold for Training Replacements

By Zack Needles
The Legal Intelligencer
New York Lawyer
February 1, 2008

PHILADELPHIA -- A rising number of retiring rainmakers are threatening to leave firms high and dry if they aren't paid for time spent breaking in the next generation of partners, according to some legal industry experts.

Many midsized (and a few larger) firms across the state still rely on senior partners to establish and foster the majority of the firm's client relationships. But when it comes time for a principal rainmaker to step down, how do the remaining partners prevent a drought?

The answer, according to some experts, lies in well-planned and organized transitioning of clients from the departing partner to a worthy successor within the firm.

But as some firm leaders are starting to find out, the answer also lies in money, as a growing number of senior partners demand compensation for having to train the heirs to their clientele instead of working on cases.

"It's a huge issue," said consultant Robert W. Denney of Robert Denney & Associates. "We come across it more and more every day, week and month."

Some senior partners are no longer willing to decrease their billable hours to manage the transition of clients without some guarantee they won't incur a significant drop in income by doing so.

The firm that refuses to pay runs the risk of having one of its top rainmakers defect to another firm that will gladly shell out for the opportunity to acquire new clients in bulk, said consultant Joel A. Rose of Joel A. Rose & Associates Inc.

According to Rose, this is a distinctly modern problem.

"Years ago, there was never an issue of partner mobility," he said. "Today, because of the amount of competition, it's a much greater issue."

While it has been a problem in one way or another for years, Rose said part of the reason compensating retiring partners has become such a hot topic over the past few years is simply a matter of timing.

"It's become a lot more prevalent now that there are so many baby boomers in their mid-50s, late 50s and early 60s who are starting to think about retiring," he said.
In a law business climate that tends to place very high value on billable hours, firms could face an onslaught of departing partners who refuse to take time away from lucrative cases without being paid for their services.

Rose said the unprepared law firm could find itself in the middle of an unsavory situation, offering an example of a recent client that tapped his consulting service to help restore order.

"I'm going to meet with the executive committee of a firm where one partner who controlled several millions in client business approached the executive committee and said he expects to be compensated, but the firm has never paid anyone for transitioning clients," he said. "There's a real political firestorm [in that firm], with some saying the firm shouldn't pay this guy anything and others who are dependent on this guy's work saying it should pay him."

According to Denney, a number of firms are taking pre-emptive measures to protect themselves against this sort of unrest, as well as a potential loss of business, by establishing systems of client transitioning before senior partners are even considering retirement.

"We used to bring up the issue to firms and now they bring it up to us," said Denney.

Because client mobility is just as much an issue as partner mobility, firms are now seeking to keep retiring partners happy and committed so that retiring partners will do the same for their clients.

"I think it's the fact that firms have been burned when a lawyer retires," he said. "They've had situations where the client will say, 'Fine, I'm going somewhere else because I don't know any of your new partners.' When younger people come in and take over [a firm], older clients feel like there's nobody there to speak their language."

It is for this reason that both Denney and Rose said having those elder statesmen of a firm be trust-building liaisons between longstanding clients and younger partners is essential to a smooth transition.

Rose said there are several ways to determine how much exiting-partners should be paid for this role, including basing it on factors such as personal production, business origination and seniority, along with how well the partners trained those who would be replacing them.

Denney believes the best way to help an exiting partner maintain financial stability while still preparing for life after billable hours is to establish a rate of compensation during the client-transitioning period that will depreciate steadily as the partner nears full retirement.

"What the smart firms are doing is protecting the lawyer's compensation for the first year or two [of the transitioning period]," he said. "Then they gradually step down their compensation as they transition the clients. This is basically for the partner's own financial stability so that they can start planning ahead for a time when they will be getting less income out of the firm."
Kevin McKeegan, managing partner of Pittsburgh-based midsized firm Meyer Unkovic & Scott, said he has not encountered the problem of retiring partners demanding payment for client transitioning, though the firm does have a system in place for aiding in that transition.

"I wouldn't call it a requirement, but the concept is that the retiring partner sits down with our client director and looks at clients and looks at who would be the most appropriate person to work with each client," he said, adding that while Meyer Unkovic is established enough to attract its own clients, it does still rely somewhat on a rainmaker business model. "It's more or less worked out on a client-by-client basis. It just seems to flow naturally."

McKeegan said retiring partners, of whom there have been only three in the past six years at Meyer Unkovic, are paid based on their individual levels of involvement in the firm - an arrangement he suspects might be what saves the firm from complaints about compensation.

Most of the leaders of both large and midsized firms interviewed by The Legal said they tend to completely shy away from the method of having partners usher in their own replacements on their way out and by doing so usually avoid pay-related grievances.

Howard D. Scher, managing shareholder of the Philadelphia office of Buchanan Ingersoll & Rooney, which has over 300 attorneys across the state, said his firm maintains relationships with its clients through teams of attorneys. That way, he said, clients are familiar and comfortable with a number of people at the firm and the relationship can be passed down and fostered naturally over long periods of time.

"There is no moment when a lawyer is obligated to introduce a client to a new person," he said.

Scher said he was familiar with compensation systems that pay based on the partner's effectiveness in transitioning his or her clients.

"The simple answer is we don't do that," he said. "That's silly. We operate in teams and the transition is a natural thing."

Stephen A. Madva, chairman of Montgomery McCracken Walker & Rhoads in Philadelphia, said that while his firm does have a mandatory retirement age of 70, with senior partners encouraged to start planning for retirement around age 65, the firm has no policy requiring senior partners to prep their successors.

"We try to keep things as informal as we can here," he said. "One thing we have noticed is that it's rare for the older partners to still have colleagues in the business world. So when their colleagues in the business world are replaced with younger people, we're sometimes able to introduce them to younger counterparts at our firm and the transitions are almost organic."

Thus, Madva said, the firm has never encountered complaints about compensation from senior partners.
"We've always believed in a degree of gradualism where it takes awhile to get to a significant income, but once you do, you stay there awhile before you start to come back down," he said.

Madva also said the firm tries to work closely with clients to determine which partner or partners they want to do business with once their primary liaison retires.

"The bottom line of all of this is that the client is always right," he said.

Arthur Makadon, chairman of Ballard Spahr Andrews & Ingersoll, which has close to 250 attorneys in its Philadelphia office, said his firm takes a similar approach to transitioning.

"Long in advance of retirement, we have [younger] partners working with [senior] partners so the transition is effectively seamless," he said. "We don't wait until the last second, and we would never foist a lawyer on a client."

Makadon also said he's never heard a complaint from a senior partner about compensation.

Bonus Bounty: Some Associates Getting $100,000
Others Not So Much

By Attila Berry
Legal Times
New York Lawyer
February 1, 2008

It’s associate bonus season for many D.C. law firms, and the numbers are trickling in.

As bonus data have accrued, we’ve been compiling the information for the D.C. offices of several firms. The list is not complete: Some firms wouldn’t disclose or haven’t yet announced bonuses.

But the picture is certainly becoming clearer. At a few firms, D.C. associates may be getting an extra check that will top $100,000. Nevertheless, firms may be moving cautiously on the bonus front because of economic uncertainty - and that may extend to end-of-year bonuses in 2008, as well.

For 2007, "I would expect bonuses to be fairly healthy," says John Childers, a legal consultant at Hildebrandt International. But he adds, "We are hearing from our clients that this year isn’t going to be as good as the last six years."

Ward Bower, a consultant with Altman Weil in the Newtown Square, Pa., office, thinks it’s too soon to tell if the 2008 bonuses will be on the slim side. However, he says, "I think it’s a much more subdued, less optimistic, more cautious approach going into 2008, rather than the beginning of last year, when everyone went gangbusters."

Some of the associates interviewed for this article agreed that while they certainly enjoyed the additional cash at the end of the year, they won’t be surprised if next year’s bonus pool is smaller. And though some were disappointed in their bonus for 2007, many agreed that the health of their firm was perhaps more important than a fatter wallet.

"I think associates enjoy a very, very nice gig," says an associate at Arnold & Porter. "Let’s nurture our resources."

Here’s how firms are stacking up:

• Arent Fox: Bonuses went out at the end of the year. Hours-based bonuses ranged from $5,000 to $35,000. But firm Chairman Marc Fleischaker notes that the firm also gives out an additional performance bonus tied to business generation and excellence that could bump up the total bonus to more than $100,000.

• Dickstein Shapiro: Firm management would not comment on 2007 bonuses. However, associates at Dickstein say that after the firm moved to the $160,000 base salary last year, it stopped giving guaranteed, hours-based bonuses and replaced them with a system based on a combination of hours and merit. For 2006, Dickstein first- and second-year associates made $30,000 for billing 2,400 hours, but some associates say that overall bonuses for 2007 have been individualized and, for many, reduced.

• Hogan & Hartson: Associates can make anywhere from $15,000 to $95,000, based on factors such as productivity, seniority, and contributions to the firm. Associates in the D.C. office received a 60 percent bump in bonuses for 2007, says the firm’s chairman, J. Warren Gorrell Jr. "Last year was a year of strong productivity for our partners and our associates, and that’s why our bonuses went up," he says.

• Howrey: As a general rule, the firm does not announce bonuses until the end of February or the beginning of March. However, Robert Ruyak, the firm’s managing partner, says they will be similar to or a little more than the previous year’s amounts. The firm’s bonuses for 2006 topped out at $70,000 to $80,000.

The firm looks at both hours and merit, and Ruyak says there are two important goals in handing out bonuses: "One is that associates feel that they’ve been treated fairly vis-B-vis each other, and secondly, we really want to incentivize people who put in extraordinary effort."

• Morgan, Lewis & Bockius: Associates are receiving performance-based bonuses. According to the firm, 2007 bonuses for the D.C. office generally ranged from $20,000 to $65,000.

• Patton Boggs: The firm has two bonuses, one that rewards hours and another for merit. The firm says the combined bonuses for last year range from $10,000 to $70,000. "We all try to put together a package that appeals to the high-quality associates that we’re recruiting, that we have, and that we want to keep," says Stuart Pape, Patton Boggs’ managing partner. But there is one caveat. If associates fail to make their 100-hour-a-year pro bono requirement for two years in a row, they get no bonus.

• Sidley Austin: First-years in the D.C. office will get $20,000 across the board for a minimum of 2,000 billable hours, according to an associate at the firm.

• Skadden, Arps, Slate, Meagher & Flom: The D.C. office gave out bonuses ranging from $35,000 to $115,000.

• Wiley Rein: The firm would not report a range on its 2007 bonuses. However, Richard Wiley, the managing partner, says the firm awards bonuses on an individual basis, in which some associates will make more than $20,000 and some less.

• Wilmer Cutler Pickering Hale and Dorr: The firm, which announced its bonuses last week, is paying second-year associates $35,000 for 2,000 billable hours, and the scale goes up to $45,000 for a second-year billing 2,400 hours.

Among the other firms that haven’t announced or aren’t yet publicly revealing their bonuses are Akin Gump Strauss Hauer & Feld (the firm says it will announce at the end of this month for associates outside New York), Covington & Burling (an announcement is expected in March), Venable, McDermott Will & Emery, Steptoe & Johnson, Pillsbury Winthrop Shaw Pittman, and Arnold & Porter.

Latham & Watkins also hasn’t announced bonuses yet, but the firm’s associate committee - half partners and half associates - should decide by the end of the month, according to Eric Bernthal, the managing partner of Latham’s D.C. office.

Bernthal says that though he was somewhat surprised by the rise in associate salaries over the past year, when it comes to compensation, "firms like Latham are going to do what they need to do to attract the best talent in the marketplace."

But there’s one locale where D.C. firms are singing the same tune: the Big Apple. The market standard in New York is an end-of-year cash bonus of $35,000 for first-years, plus a $10,000 special bonus for the 2006 associate class. Senior associates receive $100,000 to $115,000. The New York offices of Arnold & Porter, Hogan & Hartson, Akin Gump, Covington & Burling, and Sidley Austin have all matched.

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